For many young entrepreneurs with start-up businesses, one of the most difficult obstacles they encounter is raising money. Coming up with capital for your business may be relatively easy (funding may come from your personal savings or your separation pay from the company you left to start your business), but getting more funds to finance the continued growth of your business will be a lot harder. Raising enough money itself is difficult enough; you’ll have to keep in mind too that you’ll have to consider the stage of your business, what type of financing will suit your company, and how much it’s going to cost you to raise that money.
Raising Money: What You Need
There are many factors to consider when raising money in business, and it’s never an easy task. If you ask any entrepreneur or company founder – especially those who own start-up or small companies – big investors lining up at your company’s doorstep to invest is something they’d all want to happen. However, that’s not how it is in reality. Young entrepreneurs will have to rely on their own skills and knowledge to raise the money they need to support their businesses.
Here are several money raising ideas you should know and follow when raising money in business:
Appeal to emotions, back it up with logic.
To get investors on your side, you should know how to effectively market your business. It’s human nature to buy on emotion, so you should find out how to make an emotional connection with your investors. There are two ways you can do this.
- First, make your investors feel smart and that they’re going to be doing business with the right person (you!). Know your business inside and out so you can answer any question they’ll ask, and be clear about your business goals as well as your financial goals
- Second, keep your pitch simple. Numbers may be good, but making your pitch too complicated might put off some investors. Just remember the five C’s when presenting to potential investors: Be clear, concise, consistent, compliant and compelling.
Choose your investors.
While you have to do your best to get investors on your side, you also have to be smart about who you choose. It’s best to first evaluate an investor’s track record and research his background to see if his business and financial goals are similar to yours.
Get your clients to compete to be part of your company.
One of the things entrepreneurs do to get clients and investors is exaggerate – they exaggerate their successes, they exaggerate their market potential, and they exaggerate even their methods of hiring employees. However, what you need to do to get investors to take part in your start-up business is not to exaggerate but to create the feeling of exclusivity. Being part of a successful business as one of its first investors, customers or partners has a certain prestige to it.
Turn to people you know to raise money.
Get your family to invest in your business, at least in the beginning. Turning to friends as well to raise money might be a good idea – just make sure that you treat their investments as you would your big investors. It might also be more appealing to investors to see that you have as much to lose as they do if your start-up business’ capital is initially funded by your friends and family.
Bootstrapping.
Once you’ve raised money for your business, it becomes important how you’ll handle that money. Some entrepreneurs tend to squander the capital they raise and end up closing down their business. One way to avoid this from happening and to raise more using the money that you already have is to learn about bootstrapping. There are several bootstrapping techniques and strategies which can help your business not only survive but also grow.
Consider taking out a loan.
All loans – from micro loans, asset-based loans, bank-term loans, and 504 loans to private loan guarantees – can all be double-edged swords. A loan can definitely provide you with the capital you need to grow your business, but at the same time, loan payments and high rates can hurt you especially if your business isn’t reaching its target profit. When taking out a personal loan to fund your business, it’s important to have a good credit score as all banks and lenders do a credit check and base your loan rates on your score. Make sure that you monitor your credit by checking your credit scores regularly in case you do need to apply for a loan.
What to avoid when raising money for your business
One of the mistakes entrepreneurs make when raising money is not understanding the basics of money and finance. Knowing how to raise money for your business is one thing, but managing your finances is a completely different matter. Some make the mistake of assuming that as long as they know how to raise funds, it’s going to be easy to manage it.
Another important issue start-up entrepreneurs like you should avoid is letting another person take the driver’s seat. Some partners or investors take advantage of their positions to put pressure on you or to influence your business. It’s up to you make sure that you’re determined about reaching the goals you’ve set for your business.
Saving up for the future
When you’ve raised enough money to grow your business, spent it on necessary expenses (overhead expenses, buying or renting equipment, paying for third party companies for services, paying employees, and the like) and made profit, make sure to save up. The profit your business has made should be divided between the succeeding month’s expenses and savings. Building up enough savings will help your company survive tough times.
What other tried and tested money raising tips do you know? Share them with us by posting in the comments section below.
Joy Mali is an active blogger who is fond of sharing interesting finance related articles to encourage people to manage and protect their finances. Follow her and know more on how bad credit can affect your loan application and be prepared.
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